Sorting Out Sorts

Jonathan B. Berk

No 235, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we analyze the theoretical implications of sorting data into groups and then running asset pricing tests within each group. We show that the way this procedure is implemented introduces a severe bias in favor of rejecting the model under consideration. By simply picking enough groups to sort into even the true asset pricing model can be shown to have no explanatory power within each group.

JEL-codes: C22 G12 (search for similar items in EconPapers)
Date: 1998-09
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Citations: View citations in EconPapers (1)

Published as Journal of Finance, Vol. 55 (2000): 407-427.

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